Investors are on edge in the lead-up to the Wednesday Federal Open Market Committee interest rate decision that is expected to deliver the first cut to the federal funds rate in over four years.
The market is divided on the magnitude of the anticipated rate cut. Traders are assigning a 59% probability to a 50-basis-point cut, while a 41% chance is placed on a more modest 25-basis-point reduction. The size of the rate cut is crucial as it could trigger significant market reactions.
Should the Fed opt for a 50-basis-point cut, it may be perceived as an acknowledgment that interest rates are overly restrictive. This could lead to increased expectations for further rate cuts in the coming months, potentially fueling risk sentiment and driving stock prices higher.
Conversely, a 25-basis-point cut might disappoint investors who are betting on a more aggressive measure.
Since the start of 2022, the S&P 500, tracked by the SPDR S&P 500 ETF Trust (NYSE:SPY), has experienced an average move of plus or minus 1.3% during FOMC events, reflecting the market's high sensitivity to Fed policy decisions.
Goldman Sachs equity analysts, including John Marshall, analyzed stock movements during the first rate cuts in the previous three Fed easing cycles (Sept. 18, 2007, July 31, 2019 and March 3, 2020).
The data highlights the average moves of several key S&P 500 stocks with liquid options during these periods.
| Rank | Name | Absolute Average Move |
|---|---|---|
| 1 | Caesars Entertainment Inc (NASDAQ:CZR) | 5.9% |
| 2 | Nvidia Corp (NASDAQ:NVDA) | 5.5% |
| 3 | Capital One Financial Corp (NYSE:COF) | 4.6% |
| 4 | Charles Schwab Corp (NYSE:SCHW) | 4.6% |
| 5 | Mastercard Inc (NYSE:MA) | 4.5% |
| 6 | Fortinet Inc (NASDAQ:FTNT) | 4.3% |
| 7 | Marriott International (NASDAQ:MAR) | 4.2% |
| 8 | American Express Co (NYSE:AXP) | 3.8% |
| 9 | Newmont Corp (NYSE:NEM) | 3.7% |
| 10 | Deere & Co (NYSE:DE) | 3.6% |
| 11 | BlackRock Inc (NYSE:BLK) | 3.6% |
| 12 | Texas Instruments Inc (NASDAQ:TXN) | 3.5% |
| 13 | 3M Co (NYSE:MMM) | 3.3% |
| 14 | Bank of America Corp (NYSE:BAC) | 3.2% |
| 15 | JPMorgan Chase & Co (NYSE:JPM) | 3.2% |
| 16 | Oracle Corp (NYSE:ORCL) | 3.0% |
| 17 | Abbott Laboratories (NYSE:ABT) | 3.0% |
| 18 | Starbucks Corp (NASDAQ:SBUX) | 2.9% |
| 19 | Visa Inc (NYSE:V) | 2.7% |
| 20 | Verizon Communications Inc (NYSE:VZ) | 2.3% |
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Federal Reserve illustration created using artificial intelligence via MidJourney.
